DBRS Confirms FortisBC Inc. at A (low), Stable Trend

DBRS Limited (DBRS) has today confirmed the Issuer Rating as well as the Secured Debentures and Unsecured Debentures ratings of FortisBC Inc. (FBC or the Company) at A (low) with Stable trends. The Unsecured Debentures have the same rating as the Secured Debentures, reflecting (1) that the amount of Secured Debentures outstanding is minimal (4% of total debt) and (2) that FBC does not intend to issue additional Secured Debentures.

FBC’s business risk profile remained relatively stable in 2015, with no material changes on the regulatory front and in its operations. The Company is in the third year of its 2014 to 2019 Performance-Based Ratemaking Plan (PBR). FBC’s 2016 interim return on equity (ROE) and the common equity component of capital structure remain the same as 2014 and 2015, but the interim allowed ROE could change as a result of the final regulatory decision on the benchmark utility’s Cost of Capital application. The outcome of the regulatory decision remains uncertain at this time. The confirmation reflects DBRS’s expectation that the outcome will not have a material impact on the Company’s currently allowed ROE and deemed equity. If FBC’s allowed ROE and/or common equity component of capital structure are materially reduced from the current levels, its rating could be negatively affected.

DBRS recognizes that during the term of the PBR plan, FBC is exposed to forecast risk with respect to formulaic operation and maintenance (O&M) costs and base capital expenditures (capex); however, this forecast risk is modest, as only one half of the variances from formulaic O&M costs and capex are not flowed through to customers. Additionally, the PBR plan provides FBC with incentive for operational efficiency through a 50/50 sharing of the formula-driven O&M costs and capex variances over the PBR period. To date, the Company has managed to control the O&M costs and base capex to be relatively consistent with the forecast.

FBC’s credit metrics remained supportive of its current rating in 2015 and are not expected to change materially in 2016. The planned 2016 capex program of approximately $80 million (before customer contributions in aid of construction and including cost of removal) is manageable, and the Company is expected to be free cash flow neutral. The Stable trend reflects DBRS’s expectation that FBC will maintain its capital structure in accordance with the regulatory capital structure and all of its key credit metrics within DBRS’s “A” rating category.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodology is Rating Companies in the Regulated Electric, Natural Gas and Water Utilities Industry, which can be found on our website under Methodologies.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.